‘Mildly positive’ on Sunway move to raise stake in unit

PETALING JAYA: Analysts are “mildly positive” on Sunway Bhd’s move to increase its ownership in Sunway South Quay Sdn Bhd (SSQ), as it will lead to higher future earnings of the group.

In a note yesterday, HLIB Research noted that with the remaining landbank of more than 30 acres at an estimated gross development value (GDV) of more than RM3 billion under SSQ, increasing the stake would undoubtedly raise Sunway’s future profitability.

The ongoing projects under SSQ include Sunway Geo, an integrated development in Sunway City which comprises residences, retail shops and offices with a GDV of more than RM2 billion.

“We are mildly positive on the acquisition of 20% stake in SSQ at a price tag of RM210 million, which is equivalent to trailing P/E of 8.8 times vis-on-vis Sunway’s 16 times. In FY16, SSQ reported a RM120 million profit (100% stake) before any inter-company elimination.”

HLIB said Sunway is its “top pick” within the sector as it believes the group should be re-rated and trade closer to its peers such as IJM Corp Bhd and Gamuda Bhd, given its diversified income stream and declassification from property sector.

The research house maintained its “buy” call for the group, with a higher target price of RM2.25 from RM2.21 previously.

Sunway closed lower 1.1% yesterday at RM1.80 with 9.11 million shares traded.

Meanwhile, MIDF Research said it expects the impact from the acquisition on the group’s balance sheet and earnings would be minimal, hence it maintained its earnings estimate for FY17-FY18.

“We estimate net gearing of Sunway to be lifted marginally to 0.35 times from 0.32 times as at end June 2017.”

MIDF kept its “neutral” call on Sunway with a higher target price of RM1.83 from RM1.81 previously, after factoring in higher stake in SSQ and to reflect the latest target price for Sunway REIT.

On Tuesday, Sunway announced that it is raising its stake in SSQ to 80% from 60% previously, by acquiring 50,000 ordinary shares held by Kuwait Finance House (Malaysia) Sdn Bhd (KFH) at a purchase consideration of RM136.6 million.

The group said it will also repay, on behalf of SSQ, a sum of RM73.4 million in cash towards the settlement of Musyarakah capital invested by KFH in SSQ.